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UBS Faces Tightened Scrutiny Amidst Landmark Acquisition of Credit Suisse


Michael Chen

March 20, 2024 - 11:50 am


UBS Under Enhanced Oversight Following Credit Suisse Acquisition

In the midst of significant changes to its financial landscape, Switzerland has announced that its financial regulator, Finma, will be implementing dual stress tests on UBS Group AG throughout the year. This move comes as part of an increased supervisory focus following UBS's acquisition of Credit Suisse. Finma has pledged its commitment to utilizing its full range of supervisory tools to effectively oversee the integrated large bank—a testament to the seriousness with which the regulator is approaching this merger.

A UBS bank branch in Zurich. Photographer: Francesca Volpi/Bloomberg, Bloomberg

Intensified Regulatory Scrutiny

Thomas Hirschi, who stands at the helm of the banks division, disclosed these planned regulatory exercises during a press conference in Bern. With one stress test scheduled for each half of the year, Hirschi also hinted at a possible policy shift that might allow for these results to be published, a step that would increase transparency in times of enhanced scrutiny. The analytical rigour of such tests is crucial given the pivotal role UBS now plays within the Swiss economy, especially post-acquisition.

Following the dramatic events leading to the near-collapse of Credit Suisse, Switzerland has taken a proactive stance in reforming its financial regulatory framework. In the upcoming month, the government plans to deliver a comprehensive report, which could propose more stringent capital and liquidity requirements for UBS. Given the substantial growth of its balance sheet—to more than double the nation's domestic economy—such changes are not only likely but perhaps necessary to safeguard financial stability.

Strategic Crisis Management and Planning

Finma's press release highlighted that they would critically evaluate the joined entity's recovery and emergency planning strategies. It raises the pivotal question of whether the current measures are sufficient and deployable during a financial crisis, ensuring they are tested against various potential scenarios. To ensure these plans are sound, Finma has scheduled around 40 on-site supervisory reviews for the current year and also fortified the teams that are solely dedicated to overseeing the banking giant.

Tightening Liquidity Regulations

Marlene Amstad, Finma President, addressed the increase in regulatory liquidity requirements that UBS has experienced, describing it as "really significant." This revision, which took effect at the beginning of the current year, was informed by pivotal lessons gleaned from the tribulations of 2022 and 2023. During this period, clients of Credit Suisse withdrew massive amounts of funds, emphasizing the need for rigid liquidity framework codified in the new ordinance.

The Swiss National Bank, which collaborates with Finma in bank supervision, recently suggested a need to reconsider the planned capital requirement increases, which are a direct result of UBS's swollen balance sheet. However, on this particular issue, Finma has refrained from making any further statements, maintaining a cautious stance on the matter.

Colm Kelleher, UBS Chairman, has publicly expressed concerns regarding any additional hikes in capital requirements. He argues that such measures could potentially disadvantage both shareholders and customers, creating unnecessary financial burdens for the parties involved.

The implications of tightened regulation are being keenly watched by investors and the banking community alike. UBS's integration of Credit Suisse marks a landmark shift in the finance sector, and as such, it has placed the spotlight squarely on the shoulders of Switzerland's regulators who are tasked with navigating these uncharted waters.

Looking Towards a Stable Financial Future

The challenges facing UBS in light of these developments are multifaceted. As the bank faces closer examination and heightened expectations from both regulators and the public, its internal strategies must be robust and transparent. Balancing regulatory requirements with shareholder expectations and customer satisfaction is a delicate act that UBS and its leadership must navigate with care.

The double stress tests planned by Finma will be instrumental in determining the resilience of UBS’s expanded operations. These are not mere routine checks but are tailored to meticulously assess how the larger, combined entity would withstand crisis situations. As such, these tests are a critical part of ensuring that the bank is prepared for any financial adversities that may arise.

Crucially, the results of such tests, should policy change to allow publication, would provide valuable insights to all stakeholders. Banks traditionally guard stress test outcomes to prevent market panic or undue concern amongst customers and investors, but transparency in these cases could foster a greater sense of trust and stability in the system.

An Evolving Regulatory Landscape

Switzerland finds itself at a crossroads when it comes to financial regulation—an evolving saga spurred by the troubled saga of Credit Suisse and the subsequent growth of UBS. The upcoming governmental report on financial regulation reform proposes a set of changes that could have lasting impacts on the industry. The potential increase in capital and liquidity requirements would serve not only to fortify UBS's structural longevity but also reflect a broader shift towards a more cautious and prepared banking system in Switzerland.

As regulators peer deeply into UBS's liquidity and capital adequacy through the lens of these stress tests, they are not only scrutinizing the bank itself but also setting a precedent for the level of supervisory rigor that may come to characterize Swiss banking regulation. The resultant oversight could serve as a template for future measures applicable to the broader financial market, fostering a climate of greater oversight and due diligence.

Balancing Regulation with Market Dynamics

The Finma President's emphasis on the revised liquidity requirements points to lessons learned from the tumultuous period experienced by Credit Suisse. As clients pulled out funds, the need for strong liquidity buffers became glaringly evident. These experiences have shaped the new liquidity ordinance and can be expected to play a significant role in safeguarding the bank's stability should it face similar outflows in the future.

Yet, as the Swiss National Bank has indicated, there are broader discussions to be had around capital requirements and their adjustment. These discussions are not being made in isolation but rather amidst a global conversation on the necessary steps to shield the banking sector—from Switzerland to the farthest financial centers—from systemic shocks.

Kelleher's position on increasing capital requirements encapsulates the broader industry apprehension regarding regulatory overreach. The delicate balance between ensuring safety and stifling growth or customer service is at the forefront of the discourse. It presents a classic regulatory conundrum: at what point do the protective measures implemented to prevent one crisis inadvertently sow the seeds of another?

As regulators and UBS grapple with these questions, the wider financial community watches with bated breath. The regulatory responses and strategic planning from UBS could pave the way forward for how large institutions can adapt to and thrive within a strict regulatory framework that aims to eliminate the risks evidenced by the saga of Credit Suisse.


In summary, Finma's approach towards the enhanced oversight of UBS marks a significant milestone in Swiss banking regulation. The stringent measures and comprehensive planning mentioned by Hirschi are designed to ensure that the bank is fully equipped to handle and rapidly adapt to any unforeseen crises—the kind of robustness that the modern financial sector demands. Furthermore, the discussions surrounding capital and liquidity requirements could have long-term ramifications for the stability and growth of the Swiss economy at large.

By potentially allowing the results of the stress tests to be published, Finma is moving towards a regime of increased transparency that may set a new standard. Meanwhile, the bank's leadership is countering with prudential arguments to protect the interests of their shareholders and clients. The banking industry, regulatory bodies, policymakers, and the Swiss populace await the unfolding of these changes with keen interest, as they will indelibly shape the country's financial future.

For more information on the developing story of the Swiss financial regulatory environment and UBS's road ahead, please refer to Bloomberg's full report at Bloomberg.

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